SCOTTISH TRUSTS (Hansard, 12 July 1993)

§ The Financial Secretary to the Treasury (Mr. Stephen Dorrell)
I beg to move, That the clause be read a Second time.
The purpose of the new clause is to apply the same income tax treatment to beneficiaries with an interest in possession in the income of a trust governed by Scots law as applies to beneficiaries with an interest in possession in the income of a trust governed by English law. At present, beneficiaries of English and Scottish trusts are treated differently because of the differences in the underlying legal position.
We discussed this point in Committee, and the new clause responds to the undertaking that I gave there to bring the two systems into line. Scottish lawyers who are present may recognise that we have done this by aligning Scottish legal practice with the practice in England. That may not be the best solution in the context of Scottish nationalism, but in the time available it seemed the most practical way of responding to the concerns expressed in Committee.

§ Mr. Alistair Darling (Edinburgh, Central)
We welcome the new clause, which we pressed for in Committee. I am glad that, in a comparatively short time, the Government have met our objections. There remain one or two matters that might be dealt with in the Finance Bill to be introduced at the end of this year. I understand that one or two parts of the new clause might be better phrased—according to some of my colleagues who regularly practise in Scotland.
First, it is suggested that the phrase, having effect under the law of Scotland might be better expressed as a trust, the proper law of which is the law of Scotland". Such matters of definition are important. Without the change, the measure would also affect an English trust that happened to have land in Scotland.
As the House is anxious to make progress on other matters I will write to the Minister with my other 690 suggestions. Meanwhile, we welcome the new clause, without which Scottish beneficiaries of a trust would have been treated less favourably than English ones.

§ Mr. A. J. Beith (Berwick-upon-Tweed)
The Minister said that there are reasons why this form of new clause might not be so welcome as its purpose. When the issue was first raised in Committee, the effect of the Bill as it then stood being to treat dividends received through trusts in Scotland differently from those in England, the Minister was at first unpersuaded. He said that as the payment received in the Scottish case is not a dividend it would be wrong to treat it as though it were. He then listened to our arguments and was eventually persuaded that something had to be done.
Meanwhile, my hon. Friend the Member for Orkney and Shetland (Mr. Wallace) wrote to the Lord Advocate pointing out that in his view a breach of article 4 of the treaty of union might be involved because that treaty provides that all rights, privileges and advantages which do or may belong to a subject of either kingdom should be communicated to the subjects of the other". The combined considerations of the Lord Advocate and the Minister resulted in a Government willingness to table a new clause to sort out the matter.
The Minister must not be surprised to learn that Members who have a concern for Scots law are unhappy that a form of words should have been chosen which treats the matter as an extension of English law instead of changing the Scottish legal basis. The new clause uses the words: notwithstanding that no such right is conferred according to the law of Scotland". My hon. Friend the Member for Orkney and Shetland tabled an amendment—probably in order, but not chosen—which dealt with the matter via the law of Scotland. Although the Minister seemed to hint that considerations of time had driven him to this desperate expedient, I cannot believe that any technical failing in my hon. Friend's amendment could not have been improved by the efforts of the Lord Advocate's Department, assisted by the Treasury. That could have produced an amendment framed within Scots law.
Treasury Ministers may not be aware of the strong feeling in Scotland that a sort of legal imperialism prevails under which the Scots legal framework, the Scots statute book and Scots common law are all gradually eroded by United Kingdom legislation being tacked on to Scottish law. Law Bills relating to England and Wales often have clauses relating to Scotland added to them, with the result that the law of Scotland is not contained in a distinctive statute book or in Scots common law.
The Minister was thus right to anticipate that there would be some criticism on this score, and right to expect some lamentation over the fact that the practice of bolting bits of English law on to Scots law continues. It was not really necessary to go about the matter in this way.

§ Mr. Dorrell
My original remarks were not intended to cast a slur on the Scottish National party—I can cast slights in its direction on other occasions, but I was not trying to do so this time. I merely recognised that the drafting of the new clause involves an infelicity from the point of view of Scots law. I do not accept that it could have been easily reconciled, as the right hon. Member for Berwick-upon-Tweed (Mr. Beith) suggested. He said that 691 we should have spoken to the Lord Advocate. I can assure him that the Treasury has access to his advice. We did not, in the time available, find a better way of achieving the objective.

§ Dr. Norman A. Godman (Greenock and Port Glasgow)
Is the Minister perfectly relaxed about the compatibility of this measure with European Community law? The European Court of Justice is a court superior to both English and Scottish legal systems.

§ Mr. Dorrell
I am satisfied that the measure does not cause a problem with the ECJ.
We have sought to respond to the practical concern expressed in Committee—

§ Mr. Alex Salmond (Banff and Buchan)
Will the Minister answer the point about a possible breach of the treaty of union being involved? Has he consulted the Lord Advocate on that aspect? Has the latter yet replied to the leader of the Liberal party in Scotland, the hon. Member for Orkney and Shetland (Mr. Wallace), on that point? The Minister seems to be treating the matter very lightly indeed.

§ Mr. Dorrell
Not at all. I recognise that this is a matter of some concern in the Scottish legal fraternity and among those who follow Scottish legal affairs. In the limited time available between the Committee and Report stages, it seemed to the Government more important to respond to the practical concern expressed in Committee than to perfect the drafting in such a way as to meet all concerns. I commend the new clause to the House.